Turmoil at BEA fuels speculation about its future

Questions continued to swirl this week about BEA Systems Inc.’s long-term viability as another top executive resigned and the company issued a second-quarter revenue estimate that falls short of expectations.

As of Monday, Scott Dietzen left his position as CTO at the San Jose-based software maker. Dietzen had joined BEA with its 1998 acquisition of WebLogic Inc., the maker of the Java-based application server that became the company’s main product line.

Dietzen was the second technology visionary to depart from BEA in less than two weeks. Adam Bosworth, the chief architect responsible for longer-term initiatives, left BEA on July 23 to take a senior engineering role at Google Inc. In a farewell letter to colleagues, Bosworth cited his desire to play a key role at a consumer services company.

BEA’s technology group wasn’t the only area of the company to take a hit. Also departing was Scott Edgington, vice-president of worldwide channels and alliances, who left BEA for Voltage Security Inc. in Palo Alto, Calif. Rick Jackson, senior vice-president of marketing, left for a position as chief marketing officer at Borland Software Corp. Exiting with him was Erik Frieberg, senior director of product marketing. Frieberg is now vice-president of product marketing at Borland.

“I think we’re going to hear of more departures coming over the next month,” said David Rudow, a senior research analyst at Piper Jaffray & Co. in Minneapolis. “With these high-profile people leaving, you’ve got to wonder about the future vision of the firm and what customers are going to do.”

“An awful lot of enterprise customers have questioned me recently about the long-term viability of BEA,” said Anne Thomas Manes, an analyst at Midvale, Utah-based Burton Group. “That’s a significant issue if enterprise customers are saying, ‘Is it safe for me to buy something from them? Are they going to be around next year?'”

After initially projecting that revenue for the quarter would be US$265 million to US$275 million, BEA is now forecasting that it will be US$260 million to US$263 million. BEA is scheduled to release its second-quarter results on Aug. 12.

Kevin Faulkner, vice-president of investor relations at BEA, insisted that the company is “strong financially,” with US$1.6 billion in cash, which “has given us the ability to invest heavily in the products.”

He noted that two important changes have occurred that the company thinks will help going forward. Tom Ashburn, who joined BEA two years ago after a 33-year career at Hewlett-Packard Co., assumed the newly created position of executive vice-president of worldwide field operations. Formerly head of services at BEA, Ashburn will now oversee the sales, services and marketing operations that for the first time will be unified under one umbrella “for better coordination of those functions,” according to Faulkner.

The second development Faulkner cited was the setting of priorities by the company’s product leadership team, now headed by CEO Alfred Chuang. Those priorities are hardening the WebLogic 8.1 release to improve scalability, reliability and performance; building a special version of the application server for telecommunications customers; improving the features of the portal and integration products; and shipping the core of the 9.0 WebLogic Platform release during the first half of next year.

“Based on the change in the field operations and the product goals we’ve set, you should expect to see BEA become more focused and aggressive,” said Faulkner. “There will be people who like that program, agree with that program and are on board to execute. And there will be people who disagree, and they’ll move on.”

Faulkner said Dietzen and Bosworth were “visionary” and “change-the-world type of guys” who “wanted to work on something broader or something different, something that doesn’t appear on the list.” Mark Carges, an instrumental force in creating BEA’s Tuxedo software, has replaced Dietzen as CTO.

Dietzen couldn’t be located for comment. Bosworth, reached at Google, declined to comment, citing a quiet period at his new company.

One outstanding question is how Tod Nielsen, a former Microsoft Corp. official who is now chief marketing officer at BEA, will react to reporting to Ashburn rather than directly to the CEO. Nielsen also was interim head of the product leadership team after Olivier Helleboid, former president of the products group, shifted to business development. Nielsen couldn’t be reached for comment.

Faulkner said the product leadership team has been reorganized, both from a personnel and product perspective, to reflect the change in focus from individual products to the overall unified platform, “because we feel that’s the direction the market is going.”

Indeed, Jim Kline, a project manager at The ServiceMaster Co. in Downers Grove, Ill., said his company signed an agreement late last month to use BEA’s WebLogic Platform. The company previously had used BEA’s application servers for e-commerce and back-office business applications but has now decided to expand to use the WebLogic Portal and Integration products.

“The cohesiveness of the package was appealing to us,” Kline said.

Kline said ServiceMaster wasn’t aware of the various BEA executive departures and revenue forecasts when making its decision. But he said he’s not concerned. “If they don’t fill the void, then it would become a worry,” he said. “But there’s a lot of smart people at BEA, and there’s still a lot we can learn from the people who are still there.”

Kline said he was also pleased to learn about the priority to harden the 8.1 platform, which his company plans to migrate to in the coming months.

Analysts said the problem isn’t BEA’s technology, which remains top-notch. But since the application server market has become commoditized, BEA needs to differentiate itself to withstand increasing pressure from IBM, Oracle Corp., Microsoft and open-source competitors. Some analysts also have speculated that BEA either could buy another company or be acquired itself, potentially by Oracle or HP.

“There is absolutely no reason for any rash action” by BEA customers, said Yefim Natis, an analyst at Gartner Inc. “But users should be watching carefully, and they also should delay any massive strategic investments with BEA until their long-term business strategy is clarified.”

“It’s a hard thing to shift your applications from BEA to another platform, and there are an awful lot of companies who are not necessarily going to abandon what they have,” said Thomas Manes. “But they’re less likely to initiate new projects based on BEA technology.”

The fate of some of BEA’s future initiatives — such as the mobile computing project code-named Alchemy — have been called into question. Faulkner said the company is continuing to invest in Alchemy but it is not on the priority list and no ship date has been set.

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